8.25.2014

3 Acres and a Cow

All but the hard hearted man must be torn with pity for this pathetic dilemma of the rich man, who has to keep the poor man just stout enough to do the work and just thin enough to have to do it.

G.K. CHESTERTON

2008 was a pivotal year in my thinking. The big collapse happened in 2007 which gave us the memorable phrase "too big to fail." My belief at that moment was that the collapse would be minimal in its effects, but that began to fade out in 2008. This is because if those big players were too big to fail then the rest of us were too small to succeed. As I watched Obama extend most of the policies of the Bush era, I came to the realization that the new boss was the same as the old boss. Something was wrong with the world, and I began to conclude that my understanding of Austrian economics was insufficient to explain much less cure what was ailing our economy. The kernel of this rebellion came from my rejection of the Austrian idea that natural monopolies do not exist. But they do exist. We see it all the time. The big get bigger while the small get smaller. But we have heard this before. It is simply that the rich get richer while the poor get poorer. This is the natural tendency of all unjust economies. The antidote to this is wider ownership of property.

How do the rich get richer? The most basic answer to this question is the same reason why we have weather. All weather comes from the uneven warming of the earth's surface. As a consequence of this unevenness, air and condensation create endlessly changing patterns. This is why the warming of the spring brings tornadoes to the midwest USA while the beginning of fall brings hurricanes out of the Atlantic. Likewise, the beginnings of wealth come down to random events. If two equal men in two equal houses suddenly encounter a meteor falling from the sky that demolishes the home of one of the men, their equality is ended. The man with the shattered home is now poor while the man with the intact home is now rich. Without a home, the poor man is now dependent upon the goodwill of his fortunate neighbor, or he can try and begin again with nothing. Or, he can remain homeless. The rich man can either choose to be generous to his unfortunate neighbor realizing the precariousness of his own situation. Or, he can choose to exploit the misfortune of his neighbor for his own benefit.

Now, I know what you are thinking. Why should the fortunate man bail out the unfortunate man? I can totally agree on this point. Why should my good fortune obligate me to remedy your misfortune? These things spring from religious viewpoints, but I think we can say that to take the rich man's surviving home and split it with the poor guy doesn't do either one much good. But let's say the rich guy cuts the poor guy a break and lets him crash in his tool shed in exchange for yard work. This benefits both people as they both get something from the exchange. The poor guy then takes his free time and energy to rebuild his demolished home. He is thrifty and industrious and his new home is almost complete. But suddenly, the rich guy sees that his cheap yard labor is about to be lost. This will not do. So, in the night, he puts a match to the poor guy's rebuilt home and burns it to the ground. Why did he do such an evil thing? Because his being rich depends on the perpetual misfortune of his poor neighbor.

If the poor neighbor knew of the treachery of his rich neighbor, he would probably respond to the treachery with violent and destructive actions of his own. So, the rich man lies to the poor man and says that he saw lightning strike his home, and it is really the poor man's fault for not having lightning rods installed. Whatever lie he tells, you see the rich man's prosperity depends not only on the perpetual misfortune of his poor neighbor but also on the poor man's ignorance. The poor man is perpetually misinformed and kept subservient. The poor man's liberation begins by escaping his ignorance.

This parable is just a story, and you wonder how it could possibly relate to the real world. But we see this story played out again and again each and every day. In various ways, the poor working man is kept in misfortune and ignorance. If you have ever noticed the fine print on a document, you will see this game being played out before your own eyes. Why does fine print even exist? Do we have a paper and ink shortage? And even when you read it, why does it use the most obtuse and inscrutable language requiring three years of training to fathom? The answer is simple. The fine print elicits commitment without understanding. It is a trick to take advanatage of you. Or as one working man told it to me, "The first step I would take in fixing the world is to outlaw fine print."

The way the rich man burns down the home of the poor man is through usury. Debt is the way to keep poor people working but always poor. Likewise, entertainment is the way to keep ignorant people's minds working but always stupid. I used to think that freedom would come with escaping from debt, but I see very clearly that the first step is actually reading. There is a reason that it was illegal in the Old South to teach a slave to read. Reading was freedom.

Poverty and stupidity go hand in hand which is why college education became such a prize. But once again, this process works even on those with college degrees. How do you make someone smart enough to do the higher level work but dumb enough to get duped on the debt? The answer is hyperspecialization. Colleges now turn out brilliant fools who can do the physics and calculus required for engineering but can't do the simple math concerning their college loan debt. I have heard of doctors who are tops in their fields drowning in debt and regularly duped by their stock brokers and financial advisors. What specialization does is make these people good at getting money and not much else. That they consequently blow money should be little surprise.

So, who makes out on all of this trickery? The answer is obvious. Look at the people living large but with clean hands. These would be the people in financial services. There are fabulously rich people who got that way by dint of hard work, brilliance of mind, and content of character. But there is much hard work and risk providing goods and services that the public will actually want to buy. But the one thing the public always wants is money. You don't have to stay awake at night letting your brain try and come up with a new and improved widget. People want money, and if you can find a way to sell money, you are set. The selling of money is known as usury.

Money is not a thing in itself. A man dying of thirst in a desert can't drink little green pieces of paper. He wants water. But it is more convenient to carry green pieces of paper than gallons of liquid refreshment. As long as there are people selling water in the desert, he can exchange his dollars for what he needs. Money is simply a medium of exchange. But along the way, people lose that mindset and begin to confuse money with the things that the money buys. They forget that money only has value in exchange and not in itself. The Austrian economist and the gold bug think that having shiny pieces of metal is superior to green pieces of paper, but the same truth still holds. Money is a medium of exchange and nothing in itself. But it is very handy and easier than barter. As such, it is a neat and useful trick that makes life better. Unfortunately, the financial mind is not content with that single trick. New tricks emerged to supplement that magic of money as exchange and usury was born.

Imagine you wanted to buy a pizza that was selling for $1 per slice. That seems fair. Now, imagine it was selling for $20 a slice. That doesn't seem fair. You'd have to be very cash rich and pizza poor to ever consent to buying a pizza at $20 a slice. But let's say the pizza seller merely offered to rent the pizza to you. You could pay $1 a day for the slice you ate. Well, that is the most absurd thing ever. You are paying the rent on a thing which no longer exists because you ate it. No one would ever consent to such an absurdity. You would do without before you ever consented to that. Yet, that is exactly what people do each day when they buy pizza and other meals with their credit cards. They end up paying rent for things that no longer exist. That is a very neat trick. You have to wonder how people can be so easily duped. The real kicker is when they also rent that pizza for $20 a slice instead of just $1 a slice. This is because credit gives the illusion of being cash rich while advertising creates the illusion of being pizza poor. Since there are enough people who pay in cash to keep things in check, pizza never gets to $20 a slice. But things like cars, houses, and college degrees inflate far beyond a reasonable price such that they become the equivalent of $20 pizza slices.

This edifice of usury collapses when those who take on the debt cannot repay the debt. This is why the financial markets collapse. It could be the tulip bulb market, the stock market, the housing market, or the college degree market. When the indebted can no longer pay the creditor, the creditor is left with the reality that you can't get blood from a turnip. This is what happened in 2007. Subprime mortgages could not be paid back when interest rates rose. The world of make believe collided with reality. Unfortunately, the USA chose to prop up make believe by soaking the rest of us to keep the illusion going. As I write this, a citizen's share of the US debt is $55,473 per person. This means that an infant born at this moment in a hospital here in America already owes over $50K in debt. You can keep up with the debt here. This figure does not include what the infant owes to the state he or she was born into. I can say with a reasonable level of confidence that these debts are not ever going to be repaid. The USA will do like Argentina and default at some point in the future.

Usury is a sin. You don't hear this much anymore except in Islamic countries that still prohibit it. Usury enslaves. It beguiles people into a slavery with chains forged by their own greed and consumption. If you could only enact one law that would be a remedy to all of the economic and financial turmoil that exists, it should be a law forbidding the charging of interest on a loan.

There are two economies. The first economy is the real economy of goods and services that people need to survive, function, and flourish. The second economy is the make believe economy of usury, derivatives, credit cards, financial instruments, and financial engineering. You can see the relation of real to the make believe in the diagram below:

This diagram is from 2010, so it is dated. But the small circle at the bottom of the world represents the real economy while the larger circles represent the make believe economy. The make believe economy dwarfs the real economy. This isn't a problem until that make believe economy tries to make a claim on the real economy. This happened in 2007 when all those CDO's and other exotic instruments collapsed. The working person in Real World USA was unaware that his failure to make his house payments would cause the collapse of some big banks and "necessitate" the bailout of other banks. No matter how complicated financial instruments and markets can become, they still must rest on the simple foundation of reality. Reality always has the last word.

Is this fantasy world of finance unsustainable? Absolutely. You cannot get something for nothing. Somewhere, someone must pay. As such, the fantasy world of finance is merely the theft of real goods and services. When the thief runs out of goods to steal, his fate immediately becomes that of his victim. In a just world, this fantasy world of finance would not exist. But the world is unjust, and this folly continues and collapses on a regular basis.

What is the answer to this problem? The most basic answer would be economic justice. Put a stop to usury, derivatives, money printing, and other forms of financial tricks. The Austrians think the solution lies in abolition of central banking, but their solution does not go far enough. The complete solution would be the abolition of modern banking which is based on usury, fractional reserves, and the like. The gold standard would remedy some of these problems, but it also creates new ones. But all of this is academic because even the people with the solutions are unlikely to be in the power to implement them.

For the individual, the answer is the one many are doing now in various forms. The answer is to create your own economy. This is really what distributism is all about. "Three acres and a cow" was the slogan of the distributist movement. Basically, it means having enough property and capital to achieve a measure of self-sufficiency. For me, I might substitute it with "an acre of land and a solar panel." But these are just different ways of creating your own economy.

The creation of your own economy is a simple matter. As far as possible, you want to withdraw from the unjust economy and the fantasy world of finance and retreat to the real world of self-sustainability. This is what the monks did back in the day when they retreated from the savage world to their monasteries. Within those monastic communities was a self-sustaining economy, a division of labor, work, produce, leisure, culture, liturgy, prayer, and all the rest.

Critics of distributism make the same fundamental criticism. It isn't that it doesn't work. It is simply "old" and "outdated" and "antiquated." To retreat from the modern world strikes many as primitive and stupid. I'm sure the monks seemed a bit crazy for their lifestyle except in comparison to being a perpetual victim of rape, pillage, and plunder in the barbaric wider world. And today, many with no religious inclination at all are following their own monastic impulses. Minimalists, tiny house dwellers, preppers, homesteaders, the Amish, home schoolers, and people in the Free State Project all have the same impulse to create their own economies and everyone thinks they are crazy. But in their small ways, they are succeeding. They are not changing the world, but they are defying it.

There are steps that people can take in creating their own economy. The first and most elemental step is to cleanse the soul and mind. As someone put it, "Free your mind, and the rest will follow." People should get back to reading, and they should reappraise what they value in life. I don't think it is a coincidence that religious people have a strong tendency to reject the wider world in favor of doing it themselves. Developing your religious side goes a long way to teaching you about the things that really matter. I would also add that it helps to turn off the TV, the bad websites, the smartphone which makes you dumb, and all the rest in favor of actually growing your soul and mind with good reading.

The second step is to eliminate non-essential things in your life. This means downsizing and downshifting. You don't need a McMansion and a $30K SUV. Since you value truly important things like faith, family, and becoming the best version of yourself, you realize you don't really need all those things that keep you from the important things.

The third step is to get out of debt and stay out of debt. I know this sounds impossible in this age of home mortgages, student loans, car payments, and credit cards. But as much we can condemn the usurer for his usury we must also lay blame at the feet of those who borrow. Much of your extra time, money, and energy is skimmed off in varying proportions to pay the interest on your accumulated debt. As one co-worker told me, he did the math on a mortgage and calculated that he would have paid for the house he wanted three times over the course of his life. Debt is the primary way that the rich get richer and the poor get poorer.

The fourth step is to own your own home with enough land to grow much of your own food. The purpose of property is to establish and maintain your life. Unfortunately, people have reversed this thanks to mortgages and McMansions such that that their lives are spent establishing and maintaining their property. Property should serve you. You should not serve property. A modest dwelling owned without debt with a garden, livestock, and alternative energy like solar and wind should provide a significant amount of self-sufficiency. The freedom of this project is enormous and cannot be overstated.

The fifth step is to own your living. This means owning your own business, working a trade, or being part of a cooperative or employee owned enterprise. Working for others puts you at their mercy. Working for yourself gives you a level of freedom and dignity and control that no paid job will ever match. It is worth pursuing even if you fail a few times. But if you are self-sufficient and debt free, you can take risks you would never take if you owed money to some bank.

These are radical steps, but they are not new. Others have done the same things while others are doing it again. The broader globalized economy is basically a sham and a trick being played on everyone else. If you doubt this, ask yourself if you are better off today than you were before the collapse in 2007. The three acres and a cow lifestyle is a simpler lifestyle. But it is more sustainable and stable in the short term and should be more prosperous in the long term.